Select Committee on Administration First Report


APPENDIX 2

Report by the Director of Catering Services

MERCHANDISING REPORT SUMMER LINE OF ROUTE 2000

EXECUTIVE SUMMARY


INTRODUCTION

In January 2000 both Houses of Parliament agreed to a trial re-opening of the Line of Route of the Houses of Parliament for public tours, for a seven-week period from Monday 31st July until Saturday 16th September 2000. The opening of the Line of Route during the summer of 2000 would operate concurrently with and complementary to the Millennium "Voters of the Future" Exhibition, open to the public in Westminster Hall as part of the London String of Pearls events to commemorate the millennium.

The framework for the arrangements for opening were set out in the House of Commons' Administration Committee's Report: "Revised Framework for Re-Opening the Line of Route During the Summer Adjournment" (First Report, Session 1999-2000) which provided the basis for the agreement between the two Houses.

It was agreed that merchandising operations should be the joint responsibility of the Refreshment Departments of the two Houses. Based on projections submitted by the external consultant appointed to advise both Houses and as set out in the above-mentioned Report, a contribution of £63,000 (base case) or £54,000 (pessimistic case) from merchandising operations was sought.

Subsequently, a decision was made to delay the re-opening of the Line of Route until Monday 7th August 2000, with restricted places available during the first week. The Line of Route was open 6 days a week (except August bank Holiday Monday) until Saturday 16th September 2000, with the first tours leaving Sovereigns entrance at 9.30am and the last leaving at 4.15pm.

The "Voters of the Future" Exhibition was open from Monday 31st July until Thursday 14th September, also 6 days a week.

The operating hours for souvenir sales was 10.00am until 5.30pm, but this was extended to 6.00pm to ensure sufficient time for customers from the last tour.

LAYOUT & CUSTOMER FLOW

The footprint of the Voters of the Future Exhibition dictated the precise location of the merchandising area. Merchandising activities were forced into the north end of the Hall, with the sales counter positioned in front of the entrance to Westminster Hall Cafeteria (north west wall) and a free-flow grouping of 17 display cases positioned in the north east corner of the Hall. The Voters of the Future Exhibition encroached further into the merchandising zone than anticipated, consequently lessening the immediate visual impact of the display area. The display zone and the sales counter were located to either side of the exit flow route, with a counter positioned in front of the display zone so that visitors could complete their souvenir order forms before queuing at the sales counter (layout plan attached at Annexe I).

The HOCRD's electronic point of sale system (Micros) was cost prohibitive and over-complicated for use as cash tills for the Line of Route. Eight stand-alone electronic cash registers and four on-line credit card swipe terminals were therefore leased for the duration. Power and telephone lines were installed for these systems. Although the cash tills were perfectly adequate for the purpose intended, the lack of any networked solution made it very labour intensive to compile statistics, reports and sales data, and the tills were not capable of interfacing to the stock control software for automatic degradation of stock figures.

Operationally, the layout of the sales and display zones worked well, although the reduced number of visitors meant that the area was not working to its full design capacity. Even at peak times, only six of the eight tills were needed, with maximum queuing times of 5 minutes for most of the day. Occasional queuing times of 15 minutes were recorded on capacity days, but no complaints were received. During the latter part of the trial, tickets for same day tours were sold from the souvenir sales counter. Customer queuing time for ticket sales on some occasions was up to 40 minutes as only one till was available for this purpose. Customers purchasing books tended to browse for a considerable time before making a purchase decision, slowing customer flow and causing delays at the point of sale.

RECOMMENDATIONS FOR THE FUTURE

STORAGE

Three secure cages were erected for storage within the lower section of Westminster Hall Cafeteria. However, even with the additional space provided by using Room W6 there was insufficient high security storage space, and some bulky but low value stock had to be kept outside the cages, albeit within the alarmed area of the cafeteria. From the point of view of security, this was not ideal.

The access door to Westminster Hall Cafeteria was alarmed and the lock changed to restrict access to authorised personnel only. Alarm sensors were fitted to all display cabinets. Security control had to be contacted every night and each morning, as security systems could not be set by the manager responsible for merchandising.

Although the siting of the storage, directly behind the sales counter, was excellent, access was made difficult by the change in floor level. This particularly caused manual handling problems when bulk stores were being delivered into the storage area at the start of the sales period, and when unsold stock was decanted out of the area at the end of the period.

Also, the programme made insufficient allowance for the erection of secure storage, with the consequence that the Cafeteria ceased trading two days earlier than planned in order to make the necessary preparations. In total, a period of one week was not long enough for the installation and stocking of the merchandising facilities.

RECOMMENDATIONS FOR THE FUTURE

STAFFING

Management of the merchandising operation was split between various managers from the two Refreshment Departments. A temporary Merchandising Manager was taken on for two months to take day-to-day responsibility for the management of the venture. Sales staff and porters were largely re-deployed from other duties in the HOCRD, although some temporary cover was also needed, particularly for Saturday duties. The merchandising manager delivered on-job training.

Less than 25% the staff cost charged to the Summer Line of Route is additional expenditure incurred by the Houses in mounting this venture. Almost £20,000 of staff costs charged to the Line of Route would in any case have been borne by the House of Commons Refreshment Department if staff had not been re-deployed.

The re-opening of the Summer Line of Route created a considerable extra work-load for the purchasing and stores staff of both Houses, particularly prior to the opening. This was expected, but there would be a resource issue if the opening of the Line of Route became an annual event. Less expected was the significant impact that the opening had on the workloads of the accounts staff. Again, this would need to be examined in the light of any decision to open the Line of Route in future years.

RECOMMENDATIONS FOR THE FUTURE


PRODUCT RANGE

As this was a trial year for the opening of the Line of Route to the general public, there was no information available about the nature of souvenirs likely to be most popular. A more extensive range than might otherwise be normal was offered in order to provide a sound basis for determination of the product range in future years. As most of the products were drawn from the standard ranges already stocked by the two Refreshment Departments, the financial risk of unsold stock was low, as stock could be sold through the souvenir outlets of the two Refreshment Departments in the run-up to Christmas.

In total, 114 different souvenir items were offered, ranging in price from £0.10 for a single postcard to £65.00 for a limited edition plate or enamelled pill box. The product range included:

37 lines @ selling price up to £3.00 (32%)
17 lines@ selling price £3.01 - £5.00 (15%)
27 lines@ selling price £5.01 - £10.00 (24%)
21 lines@ selling price £10.01 - £20.00 (18%)
12 lines@ selling price more than £20.00 (11%)


Almost 40% of income was generated by sales of the top twenty items (defined by revenue contribution). Only 9 of these items were priced at more than £5.00 (ex VAT), the average spend projection used in the report to Committees (see Table 1).

Only five of the top twenty selling items (defined by number of transactions) were priced at more than £3.00; only two were priced at more than £5.00 ( Table 2).


RankingProduct Description
Selling
Price
Sales
Revenue
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Whisky, HOL
Chocolate Mint Creams, HOC
2001 Diary, HOC
Bone China Mug, Portcullis Design, HOC
Playing Cards, HOC/HOL
Whisky Tumblers, Cut Crystal, HOL
China Tankard, Pugin Design, HOC
Pill Box, HOL
China Mug, HOL
Baseball Cap, HOL
Silk Tie, Pugin Design, HOC
China Trinket Box, Oval, HOC
Whisky miniature, HOL
Whisky Miniature, HOC
Tea Towel, HOL
Jotter Pen, HOL
China Mug, POW
Mini Teddy Bear, HOL
Tea towel, HOC
Portcullis Brooch, Gold Plated, HOL
£14.50
£3.70
£3.85
£6.75
£7.50
£33.50
£8.45
£4.50
£7.00
£9.50
£19.00
£7.50
£1.80
£1.75
£3.00
£2.50
£4.80
£2.70
£4.50
£4.70
£7240
£4360
£3760
£3650
£3520
£3450
£3380
£3250
£3170
£2970
£2570
£2390
£2100
£2070
£2060
£2040
£2010
£1970
£1890
£1860

Table 1: Top 20 Sales Products, by revenue contribution



RankingProduct Description
Selling
Price
No. of
Transactions
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20=
20=
Postcard, single
Postcard, pack
Pencil, HOC
Pencil, HOL
Bookmark
Whisky miniature, HOC
Chocolate Mint Creams, HOC
Whisky Miniature, HOL
Gel Roller Pen, POW
2001 Diary, HOC
Stick of Rock, POW
Jotter Pen, HOL
Mini Teddy Bear, HOL
Pill Box, HOL
Tea Towel, HOL
Fudge Bar, HOC
Leather Key Fob, HOC
Bone China Mug, Portcullis Design, HOC
Gin Miniature, HOL
Whisky, HOL
Mouse Mat, HOL
£0.10
£1.50
£0.30
£0.30
£1.00
£1.75
£3.70
£1.80
£1.70
£3.85
£1.00
£2.50
£2.70
£4.50
£3.00
£0.95
£1.20
£6.75
£1.70
£14.50
£2.70
5665
1952
1688
1622
1572
1183
1177
1167
1090
977
822
817
730
722
688
654
626
541
525
499
499

Table 2: Top 20 Sales Products, by number of transactions

Whilst there was no single group of products that failed to sell, it was apparent that many customers were not aware of the significance of the work of Pugin in the interiors of the Palace of Westminster. Consequently, the "Pugin" range of merchandise, which is extremely popular with customers of the main House of Commons Souvenir Shop, fared less well with the visitors to the Summer Line of Route.

Four different designs of mug figure in the list of top twenty products by revenue contribution. Collectively, this was easily the best selling group of products, with combined sales of almost 2000 mugs yielding income of over £13,000. Of these, the best selling line was not driven by price, but was a mug that bears the crowned portcullis logo. The portcullis is obviously a very strong "brand image" and souvenirs in the neutral white and gold colour scheme used for this range of products tended to outsell both the green of the House of Commons and the red of the House of Lords.

RECOMMENDATIONS FOR THE FUTURE

  • The product range should be reduced to no more than 50 lines, concentrating on the best selling lines in terms of revenue contribution and, where there is more than one competing product, on the most profitable items.
  • More products should be developed in the selling price range of £3.00 to £5.00 in order to try to drive up the average spend.
  • New products should concentrate on the gold portcullis logo, not the coloured patterns associated with either House.
  • If the range of "Pugin" patterns is continued, the tour guides should be briefed to concentrate more on his importance to the interiors and art of Parliament. The fact that such patterns are exclusive to the Palace should also be more prominent.
  • Marketing of the Summer Line of Route should be targeted to change the current visitor profile to increase the proportion of higher spending overseas tourists.

FINANCIAL APPRIASAL

Merchandising activities generated a total income of £139,000 (including guidebooks). This is less than 30% of the "pessimistic case" income projection put forward by the external consultant. This variance to target is partly due to the shortfall in visitor numbers, which was itself partly due to the decision to delay the opening of the Line of Route by one week. However, by far the most significant reason for the shortfall in revenue against targets was the over-optimistic average spend projections of £5.00 per head from Line of Route Visitors, and £3.00 per head from visitors to the Millennium Exhibition:

Average spend per visitor was £1.17 inc. VAT (excluding guidebooks).

Average spend per transaction was £9.21 inc. VAT (including sales of guidebooks)

The table below sets out the key financial performance statistics as presented in the Committee's Report* (Appendix B):

Key Statistic
Pessimistic
Case Target
Adjusted Target
(reduced opening)
Actual
No. days opening - Line of Route
No. days opening - Millennium Exhibit

No. Visitors - Line of Route
No. Visitors - MPs & Peers' Groups
No. Visitors - Millennium Exhibition
TOTAL No. Visitors

Average Spend - combined total visitors

Net Income - merchandise
-guidebooks

Net Contribution/<Loss> 
41
41

55980
/
61500
117480

£3.95

£464400
£14000

£54000
35
39

47788
/
58500
106288

£3.95

£414440
£11947

n/a
35
39

40580
3900
84000
128480

£1.00

£128068
£10483

<£15100>

Table 3: Key Financial Performance Statistics

*Note: Revised Framework for Re-Opening the Line of Route During the Summer Adjournment (Administration Committee, HOC, First Report, Session 1999-2000)

The figures shown in the Committee's Report assumed that merchandising operations would be contracted out to a third party, and therefore give no details of assumed operating costs. However, the following points should be noted when considering the reported loss of £15,000 on merchandising operations:

  • Wage costs of approximately £26,000 have been allocated in the accounts for the Summer Line of Route; of this sum, over £20,000 represents staff costs for staff re-deployed from the House of Commons Refreshment Department, and are not, therefore, an additional cost to the House;
  • Costs include £22,450 for the purchase of the sales counter and display cabinets; under normal circumstances, this expenditure would have been capitalised and depreciated over a period of three years (ie. had this not been a trial venture, only £7,483 of this cost would have been written off in this year's accounts).

Under Resource Accounting and Budgeting, the full above costs must be shown in the accounts for the Summer Line of Route. Otherwise, the net contribution from merchandising activities could have been shown at approximately £20,000.

RECOMMENDATIONS FOR THE FUTURE

  • In determining the projected income and expenditure account for any future merchandising operation for the Line of Route, a significantly lower average spend should be assumed.
  • Without the contribution from visitors to the Millennium Exhibition, the commercial viability of the merchandising operation for the Summer Line of Route is doubtful. Whilst it will be possible to make some cost savings, the high level of fixed costs of the venture make its overall financial profitability dependent upon achievement of a radically improved average spend. Based upon customer satisfaction levels reported through research conducted by the University of Greenwich, it is not certain that such a large increase is realistic or achievable.



 
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Prepared 8 February 2001